China market turmoil sees southbound trading on stock connect pick up
Purchases of Hong Kong shares by mainland investors have exceeded northbound trading twice this month
Mainland investors have recently swooped up Hong Kong shares at an unprecedented rate through the Shanghai-Hong Kong Stock Connect scheme.
The link allows mainland China investors to buy Hong Kong H shares and international investors to buy yuan-denominated A shares on the mainland, but since its launch in November 2014 there has been more money flowing into the mainland that out. Yet recent market volatility has seen more mainland investors buying Hong Kong shares than vice versa.
“Most of the investors in China, they’re afraid of the depreciation of the RMB. So although the market is not very good, they want to change their portfolio,” Hong Kong Securities Association chairman Benny Mau Ying-yuen said. “I think it’s a continued trend, (but you may not) see a huge amount of money outflow from China to Hong Kong.”
Southbound trading from mainland investors buying Hong Kong shares has exceeded that of northbound trading of mainland China shares by global investors twice this month. The daily turnover of southbound trading rallied to HK$3.21 billion, about HK$800 million more than northbound, on January 21 and to HK$2.29 billion, about HK$118 million more, on Monday.
I think it’s very much a natural flow of money ... funds are looking for opportunity, for a safe place to park their money
Analysts attribute the unusual spikes to pessimism towards the mainland market, the depreciating yuan and the volatility of the A-share market. Investors from the mainland are looking to move money abroad as the currency continues to decline, and global investors are preferring to stay on the sidelines while China’s economic outlook remains uncertain.